Form 1040 and Schedule 1 – Income

Out of Scope by [line number]:
  • [1] Ministers/Clergy
  • [2-3] (See Schedule B resource page)
  • [4] Taxpayers using the General rule
  • [4] SIMPLE and SEP IRA distributions (IN SCOPE FOR AARP)
  • [4] Taxable ROTH (early) distributions
  • [4] Early distributions or excess contributions subject to additional tax
  • [4] Distributions from IRAs to which non-deductible contributions were made (Form 8606) (IN SCOPE FOR AARP)
  • [4] IRA rollovers that do not meet tax-free requirements
  • [4] Required Minimum Distributions (RMD) not taken (IN SCOPE FOR AARP)
  • [4] Pension Lump sum distributions (Form 4972) (SSA lump sum distributions are in scope)
  • [4] General Rule was used to figure taxable portion of pensions and/or annuities for past years
  • [4] Foreign retirement arrangements that may need special reporting (Form 8938)
  • [S1-10] State refund for a tax year other than the immediately preceding one (See exceptions below)
  • [S1-14] Other gains or losses (requires form 4797)
  • [S1-18] Farm income or loss
  • [S1-21] TP is insolvent.
  • [S1-21] Cancellation of debt on Home Mortgages may be OOS for your District or site
Useful documents:

Tax Slayer entry:

Federal Section > Income

Form 1040

[1] Wages and Salaries (W-2):

  • W-2 codes
  • Employee name mismatch – override a mis-spelled or maiden name.
  • Employee address mismatch – override if the address differs. Do not worry about “St” vs “Street”, etc.
  • SSN mismatch – the TP must ask for a corrected W-2 form from their employer before filing. DO NOT USE AN INCORRECT SSN.
  • TP has an ITIN but the W-2 shows an SSN. An additional field for the SSN will appear. Enter the SSN from the W-2.
  • If any automatically filled entries do not match, manually correct them..
  • State ID number – dashes are not important and will be removed if entered.
  • ☣ SOFTWARE ERROR If there is an entry in box 11, there is a software error that may miscalculate the CO tax. It should carry to the CO pension/annuity subtraction. Verify it does and that it doesn’t increase the subtraction more than it should. If it does the latter, go here to fix.
  • If a Medicaid Waiver Payment, see line S1-21 below. (2014 and later).
  • Unreported tip income is normally reported on the W-2 TS entry page. If there is no W-2, then on the Federal Section > Income > Other Taxes > Tax on Unreported Tip Income (Form 4137) TS page.

[2] Interest: (See Schedule B)

[3] Dividends: (See Schedule B)

[4] IRA Distributions, Pensions and Annuities:

Simplified Method:

If taxable amount is not known and there is an entry in box 9b:

  • Use the Simplified method to determine the non-taxable amount.
  • Use the Annuity calculator to figure the taxpayer’s age and joint ages if it is a survivor pension.
  • If last year’s tax return is available, check to see that the exclusion per month is the same as you figured.
  • If this is the final return for a taxpayer, and pension payments end (i.e., no surviving spouse), any remaining exclusion not taken can be entered as a Schedule A Miscellaneous deduction (not subject to the 2%).
  • If there is a surviving spouse, the exclusion continues at the same rate (i.e., continue to use both ages/birthdates).

Other Exclusions:

  • Public safety officer health insurance up to $3,000 can be excluded.
    • Simply subtract the amount from the taxable amount after any simplified method calculation.
    • Anything in excess of that can be included in the Schedule A medical insurance.
    • The exclusion does not extend to the spouse after the officer’s death.
  • Reverse mortgage distributions are not taxable..
  • Non-deductible contributions to an IRA, use Form 8606 to exclude a portion of those contributions from tax. After determining the exclusion amount, subtract the amount from the taxable amount.
    • ⚠ CAUTION : In TaxSlayer, you will have to create the return PDF, find the Form 8606 and subtract the amount in line 13 from the Gross Amount and enter into the Taxable amount – it does not carry across to the 1099-R for the IRA

Box 7 code notes:

  • Early pension/IRA distributions, whether or not additional taxes are due, are IN SCOPE.
  • If it is an early distribution (code 1 in box 7), check to see if there might be an exception to prevent the 10% tax penalty.
  • If the code in box 7 is 3 (disability), be sure to ask when the minimum retirement age for the company is. If the client is younger, check “disabled” to move the payment to the 1040 earned income line – it may add Earned Income Credit for the client.

Required Minimum Distributions not taken.

  • See the RMD table or the AARP RMD calculator.
  • Out of scope for VITA/TCE but AARP is permitted to complete Form 5329 to request a waiver for penalties to the taxpayer. This can be sent in independently of the tax return after the fact.
  • Note that 401Ks do not require a minimum distribution if the taxpayer is still working and older than 70 1/2 – different from IRAs.
  • The Box 5 amount only includes Medicare B and D. Enter this as a medical deduction – it does not carry across automatically.
  • Ask the TP if additional insurance is being withheld – the amount for January is usually different than February through December so you need both rates.
  • What’s the Tier 1 and Tier 2 all about? See this if you’re curious.
  • There is a separate TS entry form for Railroad Retirement Tier 2 benefits but the Tier 1 (social security equivalent) is not distinguished from other social security amounts. This produces erroneous results for the CO state return. Correct this using the RRB Worksheet.

[5] Social Security benefits: (See Form SSA-1099)

Tax Slayer entry is in the IRA/Pension Distributions category

  • USA
  • Beginning in 2014, if the Medicare Part B is not the typical 12 month amount, it may indicate partial year coverage and you need to determine if the taxpayer (and family) had qualified insurance coverage in other months.
  • Canada
  • Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and Old Age Security (OAS), received by US residents, are treated as Social Security Benefits.
  • If there is any tax withholding, it was in error and the taxpayer can request a refund from Canada. It is not considered “foreign tax paid”.
  • Canadian RRSPs (similar to an IRA) are OUT OF SCOPE
  • Germany
  • German pension plans, received by US residents, are treated as Social Security Benefits.
  • Other

[9] Qualified Business Income (QBI) deduction

See the Schedule C resource page for details.

[12] Child Tax Credit and credit for other dependents

See the Credits resource page for details.

[17] Refundable Child Tax Credit (Sch 8812)

See the Credits resource page.

[17] Earned Income Tax Credit (Form 8862):

  • No Tax Slayer input is required unless the TP has been denied EITC in a previous year or the TP is not eligible for EITC.
  • A taxpayer who turns 24 on Jan 1 of the current year can be considered age 24 of the previous year when qualifying for EITC.
  • A taxpayer who turns 65 on Jan 1 of the current year can be considered age 64 of the previous year when qualifying for EITC.
  • A graph of EITC amount based on taxpayer and dependent parameters is here.
  • Any prison income or taxable scholarship income is excluded in calculating this credit.

[17] Education Credits (Form 8863)

See the Education resource page.

Schedule 1 – Form 1040 line 6

[S1-10] Taxable State Refunds:

    1. To determine if the state refund could be taxable, please link to the Income Tax Refund flowchart.
    2. State refunds are only taxable if used in the previous year as a Schedule A deduction.
    3. If estimated taxes were paid in this tax year for the previous tax year, any refund amount is pro-rated to the two years.
      1. The refund to be tested for taxability in this tax year will be less than the amount received from the state.
      2. The tax paid in this tax year for the preceding tax year is added to the amount paid but decreased by its pro-rated refund.
      3. ⚠ CAUTION : Tax Slayer does not provide this calculation. In this case, use the Refund Calculator.
    4. The lesser of the following amounts is taxable.
        1. The amount of the refund (or pro-rated amount if part was paid after 12/31).
        1. The amount that the state withholding exceeded the sales tax.
        1. The amount that itemized deductions exceeded the standard deduction.
        1. The refunded amount reduced by a taxable amount that is negative.
      1. Tax Credits that were available but not fully used to reduce tax.
  1. ⚠ CAUTION : Tax Slayer does not provide the latter 2 calculations. In those cases, use the Refund Calculator if you have access to the tax return.
  2. If the sales tax figure is unavailable (typical),  the IRS provides a web site to calculate the state sales tax for previous years.
  3. Refunds from other than the previous year are OUT OF SCOPE unless the taxpayer agrees that it is either 100% taxable, or the taxpayer claimed the standard deduction or claimed the sales tax deduction for that year.
  4. Note that Colorado sales tax TABOR surplus refunds are not a refund of income tax.

[S1-12] Business Income: (See Schedule C)

[S1-13] Capital Gain or loss: (See Schedule D)

[S1-17] Rental real estate, royalties, etc: (See Schedule E)

[S1-19] Unemployment compensation

  • Verify the taxpayers health insurance coverage during the period of unemployment (e.g. COBRA?) and who was covered, for ACA purposes.

[S1-21] Miscellaneous Income

Gambling, bingo, lotteries, etc.
  • If a W-2G, enter on the Other Income > Other Compensation > Less Common Income > Gambling Winnings TS page.
  • If no W-2G, enter on the Other Income > Other Compensation > Less Common Income > Other Income Not Reported Elsewhere TS page as “Gambling Winnings”.
  • If the scholarship amount is more than qualified expenses, enter on the Other Income > Other Compensation > Scholarships and Grants TS page.
  • See the Education resource  page for more on scholarships.
Household Employee
  • If no W-2 or 1099-MISC, enter on the Other Income > Other Compensation > Household Employee Income TS page.
Cash Income Federal Section > Income > Other Income > Other Inc. Not Reported Elsewhere

  • If more than $400, should this be Self-Employment income?
Jury Duty Pay Federal Section > Income > Other Income > Other Inc. Not Reported Elsewhere

  • Enter the total amount received and describe as “JURY DUTY PAY”.
  • Any payment for travel, food or lodging is not included in income.
  • If part of the jury duty pay was given to the employer, enter that amount on 1040 line S3-36 as an adjustment.
Cancelation of Debt
  • May be reported on Form 1099-C (not required if under $600)
  • COD for non-business Credit Cards is in scope and part of the Advanced training but OUT OF SCOPE if:
    • interest shown
    • bankruptcy indicated
    • insolvency prior to COD
  • COD for Home Mortgage Foreclosure is in scope but may be OUT OF SCOPE for your District or site. Check to be sure. See the flowchart aid for details. Fill out Form 982 to exclude from income.
Medicaid Waiver Payments
  • ☣ SOFTWARE ERROR  – This must currently be entered as Other Compensation > Prisoner income.
  • The taxpayer must reside with the person affected for the amount to be excludable from income.
  • If reported on a 1099-MISC see instructions below and also add an entry for line S1-21 “Notice 2014-7” with the excludable portion amount as a negative number.
  • If reported on a W-2, see the instructions for W-2.
  • If reported on Schedule C as business income, do not deduct it here.
  • Prior years can be amended.

Entering Form 1099-MISC:

After entering a Form 1099-MISC, you will be prompted for its disposition:

  • Amount in box 1 (if no depreciation or expense) or 2, prompts for a Schedule E
  • Amount in box 3, produces no prompt but is added to the Other Income > Other Inc. Not Reported Elsewhere TS page (1040 line S1-21).
  • Amount in box 7, prompts for a Schedule C . Answer yes unless:
    • it is a sporadic activity which purpose is not a business (for example, a hobby or occasional activity). For further discussion and examples, go here.
    • it is a payment reported by an agency for care of a family member (unless in that business, then use answer yes to use Schedule C).
    • the recipient is a newspaper carrier under age 18.
    • ☣ SOFTWARE ERROR – If you don’t choose Sched C, the amount does not go to the 1040 line S1-21 nor anywhere else! Add it instead as if it were reported on line 3 of the 1099-MISC.
  • All other income boxes are OUT OF SCOPE.